March 6, 2019

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent.

Recent data suggest that the slowdown in the global economy has been more pronounced and widespread than the Bank had forecast in its January Monetary Policy Report (MPR). While the sources of moderation appear to be multiple, trade tensions and uncertainty are weighing heavily on confidence and economic activity. It is difficult to disentangle these confidence effects from other adverse factors, but it is clear that global economic prospects would be buoyed by the resolution of trade conflicts.

Many central banks have acknowledged the building headwinds to growth, and financial conditions have eased as a result. Meanwhile, progress in US-China trade talks and policy stimulus in China have improved market sentiment and contributed to firmer commodity prices.

For Canada, the Bank was projecting a temporary slowdown in late 2018 and early 2019, mainly because of last year’s drop in oil prices. The Bank had forecast weak exports and investment in the energy sector and a decline in household spending in oil-producing provinces. However, the slowdown in the fourth quarter was sharper and more broadly based. Consumer spending and the housing market were soft, despite strong growth in employment and labour income. Both exports and business investment also fell short of expectations. After growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January.

Core inflation measures remain close to 2 per cent. CPI inflation eased to 1.4 per cent in January, largely because of lower gasoline prices. The Bank expects CPI inflation to be slightly below the 2 per cent target through most of 2019, reflecting the impact of temporary factors, including the drag from lower energy prices and a wider output gap.

Governing Council judges that the outlook continues to warrant a policy interest rate that is below its neutral range. Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook. With increased uncertainty about the timing of future rate increases, Governing Council will be watching closely developments in household spending, oil markets, and global trade policy.

There is, of course, no indication of how the voting broke down in the grandly named Governing Council, in sharp distinction to the FOMC, which is comprised of sharp, confident individuals not afraid to disagree publicly with a majority. One can only suppose they strongly believe in solidarity, like Unifor and the federal cabinet.

The Canadian dollar fell about half a cent in the wake of the bank’s announcement, trading at 74.46 US cents.

TXPR closed at 628.91, down 0.88% on the day. Volume was 2.56-million, which is better than the average of the past thirty days but not extraordinary.

CPD closed at 12.68, down 0.16% on the day. Volume of 165,931 was high in the context of the past thirty days.

ZPR closed at 10.21, down 0.87% on the day. Volume of 466,822 was the highest in the context of the past thirty days, outpacing the second place February 12, when 393,540 traded.

Five-year Canada yields were down sharply, down 7bp to 1.70% today, which goes a long way towards explaining the carnage.

PerpetualDiscounts now yield 5.66%, equivalent to 7.36% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 3.90%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 345bp, a slight (and perhaps spurious) widening from the 340bp reported February 27.

HIMIPref™ Preferred IndicesThese values reflect the December 2008 revision of the HIMIPref™ IndicesValues are provisional and are finalized monthly

Index

MeanCurrentYield(at bid)

MedianYTW

MedianAverageTradingValue

MedianMod Dur(YTW)

Issues

Day’s Perf.

Index Value

Ratchet

0.00 %

0.00 %

0

0.00

0

-1.0247 %

2,171.0

FixedFloater

0.00 %

0.00 %

0

0.00

0

-1.0247 %

3,983.6

Floater

5.40 %

5.58 %

26,539

14.43

4

-1.0247 %

2,295.8

OpRet

0.00 %

0.00 %

0

0.00

0

0.0846 %

3,271.4

SplitShare

4.88 %

4.71 %

60,812

3.94

8

0.0846 %

3,906.7

Interest-Bearing

0.00 %

0.00 %

0

0.00

0

0.0846 %

3,048.2

Perpetual-Premium

5.82 %

-5.48 %

81,110

0.08

4

0.0197 %

2,908.7

Perpetual-Discount

5.52 %

5.66 %

69,725

14.28

31

0.1139 %

3,015.7

FixedReset Disc

5.15 %

5.45 %

204,227

14.77

65

-1.2198 %

2,206.6

Deemed-Retractible

5.33 %

6.13 %

93,757

8.19

27

0.0516 %

3,005.0

FloatingReset

4.38 %

5.67 %

53,525

8.55

6

-0.7766 %

2,427.7

FixedReset Prem

5.10 %

4.10 %

302,197

2.22

18

-0.1469 %

2,549.4

FixedReset Bank Non

1.98 %

4.24 %

158,218

2.80

3

-0.3048 %

2,634.8

FixedReset Ins Non

5.03 %

6.80 %

137,434

8.32

22

-1.8121 %

2,237.8

Performance Highlights

Issue

Index

Change

Notes

TRP.PR.A

FixedReset Disc

-6.17 %

A pretty poor quote provided at high cost by Nonsense Central, but I won’t be as scathing as I usually am. The issue traded 3,814 shares today in a range of 15.09-30 before being quoted at 14.44-99. The closing price was 15.09, but the last trade was at 3:15. On the other hand, TXPR was more or less at its closing level at 3:15, so what happened, anyway?

Again, this looks like a pretty poor quote provided at high cost by Nonsense Central, but I won’t be as scathing as I usually am because there are some mitigating factors. The issue traded 3,100 shares today in a range of 18.73-27 before being quoted at 18.36-88. The closing price was 18.88. So, not as bad as these things usually are, but a bid-offer spread of nearly 3% is a little high, don’t you think?